UPDATE 2-Lebanon's parliament approves country's first budget since 2005

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BEIRUT, Oct 19 (Reuters) - Lebanon's parliament on Thursday approved the first state budget in 12 years, a vital step towards reforming the fragile economy and preventing rising debt spinning out of control.

Successive governments have failed to pass annual budgets due to a string of political crises since the 2005 assassination of former Prime Minister Rafik al-Hariri.

"(Passing the budget) is a fundamental step on the state's path to reinstating order in the public finances," Minister of Finance Ali Hassan Khalil said after the vote.

Passing a budget was a priority for the government of Rafik's son, Saad al-Hariri, which took office in January.

Hariri described the 2017 budget as an "historic achievement".

A main obstacle to passing the 2017 and previous budgets has been demands from some politicians that an audit of extra-budgetary spending from previous years be carried out.

But on Wednesday, parliament approved a law allowing the budget to be passed before such an audit is completed and giving the minister of finance up to a year to carry it out.

The budget passed after three days of discussion by 61 votes for and four against. Eight members of parliament abstained.

Lebanon's economic growth has been battered by years of paralysis in government decision-making and six years of war in neighbouring Syria. Growth slowed to just over 1 percent a year from an average of 8 percent before the Syrian war.

Lebanon's debt has also risen strongly since the war began in 2011. Moody's says the debt-to-Gross Domestic Product ratio, which indicates a country's ability to pay back its debt, is the world's third highest and will reach almost 140 percent in 2018.

Economists have said a budget was vital to reforming public finances, but that more needs to be done to improve growth and investor confidence in the country: reform the heavily subsidised electricity sector, boost tax collection and upgrade crumbling infrastructure. (Reporting by Lisa Barrington and Reuters TV; Editing by Janet Lawrence)